February 2013

02/28/2013

Do you love your beneficiaries enough to take the time to check up on your beneficiary forms for your retirement accounts?

You want to ensure that your plans are carried out for your loved ones when you are no longer here, and your will is the most common powerful tool you have for this very reason. But a will is rarely an one-and-done deal – it should be updated regularly to reflect life changes as they occur. You also want to make sure your beneficiary designations and your overall estate plan coincide so they work together instead of being in conflict.

Essentially, designating a beneficiary or beneficiaries on a beneficiary form can allow you to exempt a given account or policy entirely out of your “probate” estate. However, when you avoid probate your will has no control over who inherits such account or policy. Accordingly, by not reviewing and updating your beneficiary forms, you risk giving your assets to the wrong beneficiary (e.g., an ex-spouse on your 401k plan).

The take-a-way? Perform a beneficiary form audit of your accounts to ensure they are consistent with your wishes. Contact your estate planning attorney for assistance.

02/27/2013

It is important for an executor to pay close attention to detail and engage in a careful, deliberative process. And remember that the best advice will come from an experienced and knowledgeable estate planning attorney.

Scenario: You’ve been named the executor of a loved one’s will. You feel honored to be selected, but then the reality of it all hits you – what responsibilities are entailed in this role?

To take on the role of executor is to take on several important duties, and sometimes liabilities as well. Whether you are a newly named executor or are selecting an executor as part of your estate planning, the role of executor requires in-depth understanding.

None other than Forbes recently took up this important issue with an article titled “Understanding the Role and Responsibilities of an Executor.” In effect, the executor (also known as the “personal representative”) is the named agent of the deceased, tasked with carrying out their will and tying up all of the legal and fiscal loose ends of life. Even a simple estate typically requires filing the will in probate and distributing assets appropriately to creditors and beneficiaries alike.

As you might imagine, when there is an inheritance in play a messy trifecta of courts, creditors, and family drama isn’t far behind. Depending on the nature and number of creditors, the family dynamics, and even the kinds of assets involved, things can get complicated fast.

When facing the challenge of becoming an executor (or selecting your own), it certainly helps to have the assistance and counsel of a professional. Be sure to secure the services of competent legal counsel sooner rather than later.

02/26/2013

While life insurance has long been priced by sex, companies that provide long-term care insurance (LTCI), mainly used to cover healthcare expenses in old age or for severe illness, have long avoided it. But for the first time this year, they will introduce gender-based pricing, starting with policies from Genworth Financial Inc, the nation's largest seller.

Long-term care is rapidly becoming one of the most important matters of financial security and asset protection. As a result, long-term care insurance (LTCi) is becoming more complicated and increasingly pricey.

Apparently, women should not delay when it comes to assessing their long-term care needs as LTCi policies start ratcheting rates up on the longer-living sex. This development was explored by Reuters in a recent article titled “Long-term care policies will soon cost more for women.”

Gender has long been a factor in the pricing of insurance policies, and always for very actuarial reasons. Why? Because women tend to live longer. Still the market for LTCi policies is trying to find its footing. As a consequence, at least one insurer is going to follow the actuarial numbers to higher rates.

Genworth Financial Inc., the largest seller of these LTCi products, announced that it will introduce new rates for new policies procured by women individually by as much as 20 to 40 percent. Note: for now, rates won’t increase on married couples purchasing the same policies and so that’s an important caveat, and strategy, if applicable.

This latest development is just one more reason why planning is important. It remains to be seen where the market will lead these policies, so do your homework to know what makes sense for you.

02/25/2013

Pope Benedict, 85, is reportedly the first pope to retire in almost 600 years, which made his decision all the more momentous. But since the pope believed his health issues were impacting his job, the decision seems relatively clear-cut.

For the growing number of retirement-aged professionals who are still hale and hearty, however, the decision gets more complicated.

Many were surprised at the recent announcement by Pope Benedict XVI to step down from his post. This decision is sure to go down in history, and it triggers an important question in those with lifelong careers – when is the right time to retire?

While you may not have the same problems or responsibilities as the Pope, have you reflected on your own future and when may be time to step down? This especially is true if you have no mandatory retirement age for your position.

A recent Marketwatch article titled “Retirement lessons from Pope Benedict” explored this timely issue. Whether you are the Pope, a business owner, or even a CEO, there is always the question of succession. Aside from the business aspects, on a personal level make sure your advance health directives are current in the event you became infirm or incapacitated. While you are at it, a good top-to-bottom review of your estate planning likely is in order.

Whether you are responsible for millions or just a few, the take-a-way is the same - always be prepared! Seek appropriate counsel regarding your retirement and/or succession plans.

02/22/2013

One issue that some families have encountered is that the types of philanthropy favored by one generation may not be the ones favored by the next — something that could cause strife if not addressed.

Ensuring continuity of both your family harmony and your family business is as much an art as it is a science. Such is the case with family foundations.

For a family with means, and perhaps also as a model for a family with fewer resources, a family foundation may offer just a unifying bond.

A family foundation represents a way of doing good as a family and even making those foundation goals the goals of the family itself. This kind of unifying goal was explored by CNBC in an article titled “Family Foundations Prepare for the Next Generation.”

If you are the family member who established the family foundation, the goal should expressly be to include and to establish a succession for your family foundation. In point of fact, a family foundation is like a family business and shares many of the same concerns, anxieties, and goals.

Now, even a family of modest means can see the value in the family foundation model. If for no other reason, your family foundation can be a means of doing good as a family and letting everyone in the family work together to accomplish that good end.

02/21/2013

So you have there this really cool painting that you gave away. Do you want it to be worth a lot or a little? It depends on who you gave it to.

Giving someone art rather than dollars can be complicated, especially when it comes to taxes and the IRS. So the need for a qualified appraisal is critical in this gifting situation.

When it comes to art valuations, however, you should know that the IRS certainly will not take your word for it, or even the word of a decent appraiser, until they get their own expert opinion from their own experts: the Art Advisory Panel. A fair question to ask, then, is how fair is the Art Advisory Panel?

The question of the Panel and fairness was addressed in a recent Forbes article titled “Is Art Advisory Panel Giving Taxpayers A Fair Shake?” Here’s how the competing interests play out. First, if you are a taxpayer giving art to a loved one or bequeathing it as a part of your estate, then you likely want a lower valuation. Why? Because you want a lower tax bill. On the other hand, if you are selling that very same piece of art, then you will want to command the absolute top dollar. Likewise, a body in charge of taxation is pretty much always going to be interested in a high valuation because it triggers a higher tax bill.

So, statistically, how much of taxpayer appraisals does the government Panel accept? Would you believe only 51%? In addition, the Panel “adjusts” the other 49%, and of that adjusted percentage generates a net 47% increase on items in estate and gift appraisals.

Of whom are you more cynical, the IRS or the taxpayer?

When considering the gift of art, be sure to have your valuation set and ready to go. Remember: there’s nothing an expert likes better than disagreeing with another expert - and the IRS keeps them on staff.

02/20/2013

Research shows that the ties which lead adult children to become caregivers — depending on how much contact they have with parents, how nearby they live, how obligated they feel — are weaker in stepchildren, Dr. Silverstein said. Money sometimes enters the equation too, Ms. Keller added, if biological children resent a parent’s spending their presumed inheritance on care for an ailing stepparent.

Today’s “modern family” can make good material for divorce courts and sitcoms alike, but it’s also becoming clear that there is a new family crisis brewing in elder care within these blended families. A New Old Age Blog article titled “In Blended Families, Responsibility Blurs” addresses this blended family challenge.

When it’s just parents and just the kids born from those parents, caring for elderly parents can be difficult enough. Generally, most families assume that the adult children can work things out to take care of their elderly parents. In a blended family, however, and especially in one where the parents of those adult children have remarried late in life, the boundaries can get blurry. Moral decisions once clear become blurry.

With elderly parents in such situations, there oftentimes are changes in relationships for the worse that can lead to petty angers which further add to complications. Remember, every family requires ongoing communication and shared understandings to make a family run smoothly. Easier said than done. Nevertheless, you owe it to yourself and to your loved ones to come to that point.

Here is an important takeaway: the coming generations of elderly persons are more likely to be in a blended family, so be prepared now for the challenges that may affect you and those you love.

02/19/2013

…Good intentions do not guarantee a charitable contribution deduction. By failing to properly account and document the contribution, however, the IRS and Tax Court [could] disallow the deduction.

You may think that being eligible for the charitable tax deduction is as simple as making your gift and then claiming the deduction. Not so. In order to qualify, there are important steps to take regarding documentation and valuation of your gift.

Fundamentally, you need to prove the value of what you have given, but that can get complicated when you are giving in the form of things. You need an appraisal of any thing you give (e.g., art, a house, an easement, or a service), and you need that appraisal to answer all the tax man’s questions even before he asks them. In short, appraisals can get tricky.

For example, if you give art you need an art appraiser, and if you give real estate you need a real estate professional. However, what if you give an interest or stock in a company? Then the appraisal becomes even trickier.

When you are giving less than obviously valued interests, then you might want to consider the advice given in a recent Forbes article titled “It's Hard To Satisfy The Qualified Appraisal Requirement For A Charitable Contribution If You Appraise The Wrong Property.” The problem with an interest or stock in a company is that the interest or stock is different than the things the company owns. So, 10% of the stock in a company with $5 million in assets is not (necessarily) equivalent to 10% of $5 million. Such is the case, even when the sole purpose of the company is to hold well-documented and appraised assets worth $5 million.

In a “simple case,” the IRS likely will provide leniency and determine that such and such an appraisal was “substantially compliant” if not fully so. Nevertheless, the greater the business complexity, the greater the risk of misstep and attending (and costly) determination of insubstantial compliance.

To avoid any questions being raised about your gift, obtaining an appraisal is an essential step when recognizing the tax implications of any transfer of property that is more than simply money itself. Contact your estate attorney or tax advisor for further assistance.

02/18/2013

…Proper Asset Protection is most appropriately done when the client knows that he or she has no outstanding claims, i.e., the skies are perfectly clear of creditors. Asset Protection is all about avoiding fraudulent transfers, not designing and implementing them.

Plans are made with the intent to put them into action in the future (if necessary). Asset protection planning is no different, although many people attempt this type of planning entirely too late.

Asset protection is about making sure matters are structured now to protect them if a legal claim may threaten them later. If there already is a claim, then any act to protect assets becomes suspect and reversible (or punishable).

If you have reason to protect your assets due to some future risk you can envision, then now is the time to plan. Courts do not look favorably on last minute plays to protect assets.

Consult with your estate asset protection attorney on all of your asset protection needs. Planning now will ensure peace of mind for the future.

02/15/2013

The good news is the estate tax won’t apply to as many business owners as we feared; the bad news is that when it applies, it has a nasty sting.

Over the past several years, we’ve seen estate taxes go through many alterations. We’ve seen changed exemption amounts, a one-year repeal, and “band-aid” fixes to name a few. In fact, the only thing certain about the federal estate tax was its uncertainty.

Until now.

Congress finally gave us permanent estate tax rules; and by permanent, I mean that except for a built in inflation factor for the estate and gift exclusion, the provisions don’t expire or change with the passage of time.

Interestingly, despite its potentially onerous tax bite, the federal estate tax remains largely a voluntary tax. As Forbes points out in a recent column, “Want to Avoid the Estate Tax Cliff? Five Ways to Help,” the new provisions still allow savvy planners to substantially reduce, or even eliminate, federal estate taxes -- even on estates that far surpass the $5.25 million exemption.

Forbes goes on to list five powerful strategies for reducing federal estate taxes:

Gifting. The new provisions allow you to make tax-free lifetime gifts up to an amount equal to the federal estate tax exemption, currently $5.25 million. Straightforward gifting of assets while you are alive removes them -- and their future growth or appreciation -- from your estate tax-free.

Discounting. There are still a myriad of techniques that can be used to discount the value of stock for transfer purposes. These techniques center on lack of control/minority interest and/or lack of marketability, and can create a substantial valuation discount.

Loans. Family business owners can take advantage of historically low interest rates for loans used to execute sales of stock. As Forbes points out, “currently, a parent can sell shares of the family-owned business to the child for a fixed long term interest rate as low as 2.52%, and not incur a gift tax because of the loan rate.”

Insurance. Properly purchased and owned, life insurance can be used to provide the cash needed to pay any federal estate taxes that may remain after other planning strategies are exhausted. Remember, the cash-call on federal estate taxes is due within nine months of the business owner's death.

Charitable Giving. If the family is not interested in the business, but is interested in the wealth it has generated, a charitable gift of a business interest may be a savvy way to dispose of the business while also saving on taxes. As Forbes points out, “there are still a number of tax-smart ways to transfer the business to a nonprofit organization, and fulfill your estate planning goals.”

What we love about the new estate tax rules is their permanence, but what we don’t like is their sting -- in the form of 40 percent on the first dollar over the exemption amount (currently $5.25 million). Be sure to plan wisely for your estate tax liability, or risk being “stung” by the rules.